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CALIFORNIA CORPORATE & SECURITIES LAW

Suspension By The Franchise Tax Board

Yesterday’s post concerned the two circumstances in which the Secretary of State might suspend a corporation.  The California Franchise Tax Board will suspend a corporation if it fails to pay taxes, penalties, fees or interest (Cal. Rev. & Tax. Code § 23301) or fails to file a return (Cal. Rev. & Tax. Code § 23301.5).

These suspension provisions also apply to a foreign taxpayer if (and only if) it is “qualified to do business” in California. Cal. Rev. & Tax. Code § 23301.6.  The phrase “qualified to do business” in the statute, however, is inapt.  Under the General Corporation Law, a foreign corporation qualifies to “transact intrastate business”.  Cal. Corp. Code § 2105.  For an explanation of the difference between “transacting intrastate business” and “doing business”, see You May Be Doing Business In California Even When Not Transacting Intrastate Business.

The consequences of suspension by the Franchise Tax Board are significant.  According to the Franchise Tax Board, a suspended corporation may not:

  • Legally transact business
  • Bring an action or defend itself in court
  • Receive an automatic extension of time to file
  • File a claim for refund
  • File or maintain an appeal before the Board of Equalization.
  • Begin or continue a protest
  • Legally close or dissolve the business

In addition, a suspended corporation may lose its right to revive under its own name if another corporation appropriates its name during the period of suspension.

In a future post, I’ll discuss how to revive a foreign corporation from suspension by the Franchise Tax Board.

 

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